The Impact of Drug Benefit Caps

1. The Impact of Drug Benefit Caps Geoffrey Joyce, PhD

2. Acknowledgements • Collaborators: • Dana Goldman • Pinar Karaca-Mandic • This research was funded by: • National Institute on Aging

3. Benefit Cap • Annual limit on the plan’s contribution • In this case, $2,500 benefit cap • Common in Medicare M+C plans • Impact of caps on retirees < age 65 and 65+ in 2003-2004

4. Imposing a Spending Cap Creates aFundamental Trade-off • Imposing a spending cap decreases the cost to provide the prescription benefit • Makes coverage available to more beneficiaries • A spending cap creates a coverage gap (or “donut hole”) for beneficiaries • Increases the risk that patients will reduce or cease drug therapy

5. As Set Up, Medicare Part D Raises Some Issues Catastrophic Coverage Insurer Pays 95% of Costs Catastrophic Coverage Insurer Pays 90% of Costs Stop-Loss $5,100($3,600 in out-of-pocket) 5% Cost-Sharing Above Stop-Loss Beneficiary Pays Next $2,850 in Rx Spending Beneficiary Paid Insurer Paid Initial Coverage Limit $2,250 75% Paid by Plan($1,500) 50% of Costs Paid by Insurer ($2,113) 25% Copay ($500) $250 Deductible 2006

6. Tseng et al (2004): Surveyed Beneficiaries to Assess the Effects of Spending Caps • 1,300 Medicare+Choice enrollees in one state in 2001: • Group who exceeded their annual prescription benefit cap of $750 or $1,200 • Matched controls who did not exceed their annual cap of $2,000 • Those exceeding the cap had resulting coverage gaps of 75–180 days

7. Beneficiaries Reported Using Several Strategies When They Exceeded Caps Switched Drugs 15 (9) Used Drugs Less Often 18 (10) Used Free Samples 34 (27) 0 10 20 30 40 Percent of Beneficiaries Using Strategy

8. Hsu et al (2006): Impact of $1,000 Cap on Utilization, Costs, & Clinical Measures • Compared clinical and economic outcomes in 2003 among Kaiser M+C members in capped vs. non-capped plans in 2002-2003 (age 65+) • Employer-supplemental insurance – No cap • Individual-purchased - $1,000 benefit cap • About 13% reached the cap in 2003 • Those in capped plan: • 31% lower Rx costs • No difference in total medical costs

9. Hsu et al (2006) • But had higher rates of • ED visits (RR=1.09) • Nonelective hospitalizations (RR=1.13) • Mortality rate (1.22) • Non-adherence (1.2-1.3) • Capped members had higher odds (1.2 – 1.3) • Elevated LDL • Systolic blood pressure • HbA1c

10. Aims of This Study • Examine Rx utilization and costs in more detail • Behavior pre- and post-cap • Timing of cap • Stopping, switching, mail-order use, by class • Do those who stop resume drug therapy in subsequent year • Impact on hospitalizations and ED visits

11. Data & Methods • We linked health care claims to health plan benefits of 30 large employers (1997-2004) • Over 50 health plans • Nearly 8 million person-years • Analyze 7 plans in 2003-2004 from large employer • 2 plans had an annual Rx benefit cap of $2,500 • Compare Rx and medical use • Among groups within the same (capped) plan • Among persons in capped vs. uncapped plans

12. Distribution of Health Plan Spending in Capped Plans (PPPY)

13. Classify Members Into 3 Groups • Group 0: Rx spending by the health plan <= $2,400 • Group 1: Rx spending by the health plan > $2,400 • But no subsequent Rx claims • Group 2: Rx spending by the health plan > $2,400 • With subsequent Rx claims

14. When Do Members Reach the Cap?

15. Monthly Rx Spending in Capped vs. Non-capped Plans (>$2,400)

16. Monthly Rx Use in Capped vs. Non-capped Plans (>$2,400)

17. Percent Switching Medications Post-Cap(Among Those Reaching the Cap Before November)

18. Percent Stopping Medications Post-Cap(Among Those Reaching the Cap Before November)

19. Resumption of Medication Use • Among those who stopped taking a class of medications in capped plans • Modest take-up in Q1 of 2004 • May be related to data problem in 2003

20. Preliminary Conclusions • Imposing a spending cap: • Reduces Rx use overall • 50% - 66% reductions in Nov-December • Effects vary modestly by therapeutic class • Increases the risk of adverse health outcomes • Inconsistent evidence on medical use